Finance

A radical monetary-policy experiment has all but come to an end. On March 19th officials at the Bank of Japan (BoJ) announced that, with inflation of 2% “in sight”, they would scrap a suite of measures instituted to pull the economy out of its deflationary doldrums. The bank raised its key interest rate for the first time since 2007, from minus 0.1% to between 0 and 0.1%, becoming the last central bank in the world to do away with a negative-interest-rate policy. It will also stop purchasing exchange-traded funds and abolish its yield-curve-control framework, a tool to cap long-term bond yields. Even so, the BoJ also made clear that its stance would remain broadly accommodative: the withdrawal of its most unconventional policies does not augur the beginning of a tightening cycle.This shift reflects changes in the underlying condition of the Japanese economy. Inflation has been above the bank’s 2% target for 22 months. Data from annual negotiations between trade unions and large firms released last week suggest wage growth of over 5% for the first time in 33 years. “The BoJ has confirmed what many people have been suspecting: the Japanese economy has changed, it has gotten out of deflation,” says Hoshi Takeo of the University of Tokyo. That hardly means Japan is booming—consumption is weak and growth is anaemic. But the economy no longer requires an entire armoury of policies designed to raise inflation. When Ueda Kazuo, the BoJ’s governor, was asked what he would name his new framework, he said it did not require a special name. It was “normal” monetary policy.image: The EconomistJapan’s economy slid into deflation in the 1990s, following the bursting of an asset bubble and the failure of several financial institutions. The BoJ began trying new tools cautiously at first. Although in 1999 the bank cut interest rates to zero, it lifted them the following year, only to see prices fall again (one of two board members opposed to the decision at the time was Mr Ueda). The BoJ then went further, becoming the first post-war central bank to implement quantitative easing—the buying of bonds with newly created money—in 2001.Yet it did not fully embrace the wild side of monetary policy until the arrival of Kuroda Haruhiko as governor in 2013. Backed by then-prime minister Abe Shinzo, Mr Kuroda embarked on a programme of vast monetary easing, vowing to unleash a “bazooka” of stimulus. The bank adopted a 2% inflation target and began “quantitative and qualitative easing”, which saw enormous government-bond purchases coupled with aggressive forward guidance (promises to keep policy loose). In 2016 the bank set its key overnight rate at minus 0.1%, and then implemented yield-curve control in order to restrain longer-term interest rates, too. Although inflation picked up a bit, it never consistently reached the central bank’s target during Mr Kuroda’s term, which ended nearly a year ago.Officials are now confident that inflation has at last become embedded and the Japanese economy is strong enough to get by without extreme measures. Supply-chain snags and rising import costs pushed inflation up at first, but price rises have since become widespread. GDP growth figures for the last quarter of 2023 were recently revised into positive territory owing to an uptick in capital expenditure.image: The EconomistThe missing piece of the puzzle had been wages. Last year annual wage negotiations produced gains of 3.8%, the highest in three decades. But wage growth still trailed inflation itself, leaving real incomes falling. Then came last week’s blockbuster numbers. They included a big boost to the so-called base-up portion of Japanese wages, which is not linked to seniority. A sustained period of rising prices has emboldened unions to push forcefully for higher pay; Japan’s shrinking labour force is also forcing firms to compete for talent. Policymakers “have been very, very patient, deliberately waiting for the right timing”, says Nakaso Hiroshi, a former BoJ deputy governor. “And now the time is right.”For such a momentous decision, the short-term impact is likely to be limited. The BoJ had hinted at its intentions ahead of time, meaning markets priced in the move. The yen depreciated slightly against the dollar following the announcement. The bank had already loosened its yield cap last year. Long-term yields have settled at around 0.7% to 0.8%, below the scrapped 1% reference point. Although some Japanese investors may bring funds home as a consequence of the policy shift, global capital flows are unlikely to move drastically, since rates in Japan will still be quite low by international standards, notes Kiuchi Takahide of Nomura Research Institute, a research outfit. Nor will the change to the policy rate have a big effect: under the BoJ’s old framework, there were three tiers of accounts, and the share of funds held in those subject to negative rates was minimal.The big question is where the BoJ goes from here. Officials have been careful to signal that they are not embarking on a tightening cycle. In a speech last month, Uchida Shinichi, a deputy governor, said there would not be a rapid series of rate rises. Mr Ueda offered few clues about where he suspects rates will settle; most economists reckon they will not exceed 0.5%. The BoJ will also continue buying “broadly the same amount” of government bonds to continue controlling long-term rates. Normalisation of its own balance-sheet will be a gradual process. “The BoJ has left a huge footprint on the market,” says Kato Izuru of Totan Research, a think-tank. “They want to reduce that footprint, but it cannot be reduced suddenly.”Monetary menaceAs the BoJ enters its new era of policymaking, several risks loom. One comes from overseas. If there is a slowdown in America or China, Japan’s two biggest trading partners, it would weigh on external demand and drag down the outlook for Japanese firms, making them less likely to invest.Another risk comes from within. In the long run, interest payments on Japan’s sizeable government debt will rise, putting pressure on the public finances. The financial system looks sound, but Japan’s financial regulator recently stepped up oversight of regional lenders’ loan books. Many observers are concerned about the impact of rate rises on mortgages and small and medium-sized businesses that do not have large cash buffers.Most worrying, inflation could fall below target once again. Price inflation, while still above 2%, is already falling. Two doveish board members voted against the decision to abolish negative interest rates, arguing that more time was needed to be sure that inflation will stick. For the trend to continue, Japan needs reforms that raise productivity and boost the potential growth rate, Mr Nakaso argues. If there is one lesson from Japan’s era of monetary-policy experiments, it is that there are limits to central banks’ powers. During Japan’s new era, others will have to take the lead. ■ More

The forces that consumed three regional lenders last March have left hundreds of smaller banks wounded, as merger activity — a key potential lifeline — has slowed to a trickle.
Klaros Group analyzed about 4,000 institutions and found 282 with both high levels of commercial real estate exposure and large unrealized losses from the rate surge — which may force these lenders to raise fresh capital or merge.
Behind the scenes, regulators have been prodding banks with confidential orders to improve capital levels and staffing, according to Klaros co-founder Brian Graham.

The forces that consumed three regional lenders in March 2023 have left hundreds of smaller banks wounded, as merger activity — a key potential lifeline — has slowed to a trickle.
As the memory of last year’s regional banking crisis begins to fade, it’s easy to believe the industry is in the clear. But the high interest rates that caused the collapse of Silicon Valley Bank and its peers in 2023 are still at play.

After hiking rates 11 times through July, the Federal Reserve has yet to start cutting its benchmark. As a result, hundreds of billions of dollars of unrealized losses on low-interest bonds and loans remain buried on banks’ balance sheets. That, combined with potential losses on commercial real estate, leaves swaths of the industry vulnerable.
Of about 4,000 U.S. banks analyzed by consulting firm Klaros Group, 282 institutions have both high levels of commercial real estate exposure and large unrealized losses from the rate surge — a potentially toxic combo that may force these lenders to raise fresh capital or engage in mergers.  

The study, based on regulatory filings known as call reports, screened for two factors: Banks where commercial real estate loans made up over 300% of capital, and firms where unrealized losses on bonds and loans pushed capital levels below 4%.
Klaros declined to name the institutions in its analysis out of fear of inciting deposit runs.
But there’s only one company with more than $100 billion in assets found in this analysis, and, given the factors of the study, it’s not hard to determine: New York Community Bank, the real estate lender that avoided disaster earlier this month with a $1.1 billion capital injection from private equity investors led by ex-Treasury Secretary Steven Mnuchin.

Most of the banks deemed to be potentially challenged are community lenders with less than $10 billion in assets. Just 16 companies are in the next size bracket that includes regional banks — between $10 billion and $100 billion in assets — though they collectively hold more assets than the 265 community banks combined.
Behind the scenes, regulators have been prodding banks with confidential orders to improve capital levels and staffing, according to Klaros co-founder Brian Graham.
“If there were just 10 banks that were in trouble, they would have all been taken down and dealt with,” Graham said. “When you’ve got hundreds of banks facing these challenges, the regulators have to walk a bit of a tightrope.”

These banks need to either raise capital, likely from private equity sources as NYCB did, or merge with stronger banks, Graham said. That’s what PacWest resorted to last year; the California lender was acquired by a smaller rival after it lost deposits in the March tumult.
Banks can also choose to wait as bonds mature and roll off their balance sheets, but doing so means years of underearning rivals, essentially operating as “zombie banks” that don’t support economic growth in their communities, Graham said. That strategy also puts them at risk of being swamped by rising loan losses.

Powell’s warning

Federal Reserve Chair Jerome Powell acknowledged this month that commercial real estate losses are likely to capsize some small and medium-sized banks.
“This is a problem we’ll be working on for years more, I’m sure. There will be bank failures,” Powell told lawmakers. “We’re working with them … I think it’s manageable, is the word I would use.”
There are other signs of mounting stress among smaller banks. In 2023, 67 lenders had low levels of liquidity — meaning the cash or securities that can be quickly sold when needed — up from nine institutions in 2021, Fitch analysts said in a recent report. They ranged in size from $90 billion in assets to under $1 billion, according to Fitch.
And regulators have added more companies to their “Problem Bank List” of companies with the worst financial or operational ratings in the past year. There are 52 lenders with a combined $66.3 billion in assets on that list, 13 more than a year earlier, according to the Federal Deposit Insurance Corporation.

Traders work on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., February 7, 2024.
Brendan Mcdermid | Reuters

“The bad news is, the problems faced by the banking system haven’t magically gone away,” Graham said. “The good news is that, compared to other banking crises I’ve worked through, this isn’t a scenario where hundreds of banks are insolvent.”

‘Pressure cooker’

After the implosion of SVB last March, the second-largest U.S. bank failure at the time, followed by Signature’s failure days later and that of First Republic in May, many in the industry predicted a wave of consolidation that could help banks deal with higher funding and compliance costs.
But deals have been few and far between. There were fewer than 100 bank acquisitions announced last year, according to advisory firm Mercer Capital. The total deal value of $4.6 billion was the lowest since 1990, it found.
One big hang-up: Bank executives are uncertain that their deals will pass regulatory muster. Timelines for approval have lengthened, especially for larger banks, and regulators have killed recent deals, such as the $13.4 billion acquisition of First Horizon by Toronto-Dominion Bank.
A planned merger between Capital One and Discovery, announced in February, was promptly met with calls from some lawmakers to block the transaction.
“Banks are in this pressure cooker,” said Chris Caulfield, senior partner at consulting firm West Monroe. “Regulators are playing a bigger role in what M&A can occur, but at the same time, they’re making it much harder for banks, especially smaller ones, to be able to turn a profit.”

Despite the slow environment for deals, leaders of banks all along the size spectrum recognize the need to consider mergers, according to an investment banker at a top-three global advisory firm.
Discussion levels with bank CEOs are now the highest in his 23-year career, said the banker, who requested anonymity to speak about clients.
“Everyone’s talking, and there’s acknowledgment consolidation has to happen,” said the banker. “The industry has structurally changed from a profitability standpoint, because of regulation and with deposits now being something that won’t ever cost zero again.”

Aging CEOs

Another reason to expect heightened merger activity is the age of bank leaders. A third of regional bank CEOs are older than 65, beyond the group’s average retirement age, according to 2023 data from executive search firm Spencer Stuart. That could lead to a wave of departures in coming years, the firm said.
“You’ve got a lot of folks who are tired,” said Frank Sorrentino, an investment banker at boutique advisory Stephens. “It’s been a tough industry, and there are a lot of willing sellers who want to transact, whether that’s an outright sale or a merger.”
Sorrentino was involved in the January merger between FirstSun and HomeStreet, a Seattle-based bank whose shares plunged last year after a funding squeeze. He predicts a surge in merger activity from lenders between $3 billion and $20 billion in assets as smaller firms look to scale up.

One deterrent to mergers is that bond and loan markdowns have been too deep, which would erode capital for the combined entity in a deal because losses on some portfolios have to be realized in a transaction. That has eased since late last year as bond yields dipped from 16-year highs.
That, along with recovering bank stocks, will lead to more activity this year, Sorrentino said. Other bankers said that larger deals are more likely to be announced after the U.S. presidential election, which could usher in a new set of leaders in key regulatory roles.
Easing the path for a wave of U.S. bank mergers would strengthen the system and create challengers to the megabanks, according to Mike Mayo, the veteran bank analyst and former Fed employee.
“It should be game-on for bank mergers, especially the strong buying the weak,” Mayo said. “The merger restrictions on the industry have been the equivalent of the Jamie Dimon Protection Act.” More

Grayscale’s CEO Michael Sonnenshein told CNBC on Monday that fees on its flagship bitcoin ETF will come down over time, softening an earlier stance defending costs above the market average.
Grayscale’s GBTC has logged outflows of more than $12 billion since it was converted into an ETF in early January, due in no small part to its higher-than-average fees.
Grayscale also wants to introduce other ways of giving investors less costly ways of accessing its bitcoin ETF, including a “mini” version of its flagship product.

Michael Sonnenshein, CEO, Grayscale Investments at the NYSE, April 18, 2022.
Source: NYSE

LONDON — The boss of digital asset management firm Grayscale, which manages the $26 billion exchange-traded fund GBTC, has said that fees on its flagship product will come down over time, after its outflows reached $12 billion.
Grayscale CEO Michael Sonnenshein said that the crypto fund manager expects to bring fees on its Grayscale Bitcoin Trust ETF down in the coming months, as the nascent crypto ETF market matures.

“I’ll happily confirm that, over time, as this market matures, the fees on GBTC will come down,” Sonnenshein told CNBC in an interview on Monday. The firm previously defended its costlier-than-market-average charges.
“We have seen this in countless other exposures, countless other markets, you name it, where typically when products are earlier in their lifecycle, when they’re new to be introduced, these [fees] tend to be higher. And, as those markets mature, and as those funds grow, those fees tend to come down, and we expect the same to be true of GBTC.”
GBTC has logged outflows of more than $12 billion since it was converted into an ETF in early January, according to data from crypto investment firm CoinShares, due in no small part to its higher-than-average fees.

CoinShares’ data shows that GBTC recorded its biggest single daily outflow on Monday, with withdrawals totalling $643 million.
“Of course, we anticipated having outflows,” Sonnenshein told CNBC. “Investors have been wanting to either take gains on their portfolio, or arbitragers coming out of the fund, or people unwinding positions that were part of bankruptcies through forced liquidation.”

Market commentators argue that the bankruptcy of crypto giant FTX has played a significant role in the selloff of GBTC. FTX was a major holder of GBTC before it filed for insolvency in November 2022, holding about 22 million shares as of Oct. 25.
The FTX bankruptcy estate reportedly offloaded the majority of its shares in Grayscale’s bitcoin ETF, according to January reporting from Bloomberg and CoinDesk.
“None of that came as a surprise, right,” Sonnenshein said, speaking about the outflows. “What we’ve seen is GBTC continue to trade liquidly with tight spreads, and across a very diversified shareholder base. So we kind of think we’re between the first and the second inning of this.”

“We’re kind of at the end of that first inning now, where the pent-up demand for buying has hopefully been satisfied, the pent up demand for selling has also hopefully been satisfied,” Sonnenshein added.
“And now we’re kind of starting to move towards that second and third inning, where there’s so much more of the market that still is not yet accessing these products.”
The crypto fund manager charges a 1.5% management fee for GBTC holders, significantly higher than the charge commanded by many ETF providers, including BlackRock and Fidelity.

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Vanguard has waived fees for investors entirely until March 2025 in a bid to lure in deposits.
Grayscale’s Sonnenshein defended the firm’s high fees at the time, telling CNBC they were justified by GBTC’s liquidity and track record. He said that the reason other ETFs have lower fees is that their products “don’t have a track record,” and the issuers are trying to lure investors with fee incentives.
Sonnenshein said the reason other ETFs have lower fees is that the products “don’t have a track record” and the issuers are trying to attract investors with fee incentives. “I think from our standpoint, it may at times call into question their long-term commitment to the asset class,” he said.

Sonnenshein told CNBC Monday that “all of these new issuers really came into the market to compete with us” and are also rivaling each other.
Grayscale also wants to introduce other ways of giving investors less costly ways of accessing its bitcoin ETF, including a “mini” version of its flagship product — the Grayscale Bitcoin Mini Trust, announced last week. The new ETF is set to trade under the ticker “BTC” and have a materially lower fee than GBTC.
The new BTC ETF would be effectively spun out of the Grayscale Bitcoin Trust ETF and seeded with an as-yet undisclosed portion of bitcoin underlying GBTC shares.
Under this structure, existing holders of GBTC would be able to benefit from a lower total blended fee while maintaining the same exposure to bitcoin, spanning ownership of shares of both GBTC and BTC.
Existing GBTC shareholders would also be able to convert into BTC without paying capital gains tax.
The firm is currently awaiting approval from the U.S. Securities and Exchange Commission for its Bitcoin Mini Trust ETF.
Moving forward, Sonnenshein wants investors to turn their attention toward the business’ other crypto investment products, which track prices of different cryptocurrencies including ether and solana.
The company is trying to have its Grayscale Ethereum Trust converted into an ETF, but is awaiting SEC approval. More

More than $40 million was reportedly withdrawn from the state-owned Commercial Bank of Ethiopia or transferred to other banks before transactions were halted.
The bank’s President Abie Sano told a press conference on Monday that a large portion of the cash was withdrawn by students.
In a post on X, the CBE confirmed the service interruption but denied that it was the result of a cyber attack. It added that its ATM services were now “fully operational.”

ADDIS ABABA, Ethiopia – Dec. 7, 2023: A branch of the Commercial Bank of Ethiopia in Addis Ababa.
Bloomberg | Bloomberg | Getty Images

Ethiopia’s largest bank is struggling to recoup millions of dollars after a glitch over the weekend allowed customers to withdraw unlimited funds, according to local media reports.
More than $40 million was reportedly withdrawn from the state-owned Commercial Bank of Ethiopia or transferred to other banks, as customers discovered they could withdraw more than their total balance. Transactions were halted several hours later.

The bank’s President Abie Sano told a press conference on Monday that a large portion of the cash was withdrawn by students, with the BBC reporting that long lines formed at campus ATMs.
Several universities have urged students to return cash that isn’t theirs, and Sano reportedly told Monday’s press conference that anybody who returns the money will not be criminally prosecuted.
In a post on X, the CBE confirmed the service interruption but denied that it was the result of a cyber attack. It added that its ATM services were now “fully operational,” according to a Google translation.
Ethiopia’s central bank, which oversees its financial sector, said in a statement that the interruption was a result of system security checks and “not an incident that endangers the bank, its customers and the entire financial system,” according to a Google translation.
CNBC has contacted the CBE for comment. More

Hindenburg has been a standout performer among short sellers over the past few years, according to data.
Short selling is the practice of borrowing an asset and selling it on in the hope of buying it back at a lower price, thereby pocketing the difference and profiting from the decline of the asset’s value.
Short-selling is a controversial practice, since it involves making money from the decline of somebody else’s asset value.

NEW YORK – Jan. 6, 2023: Nate Anderson works at his desk. Anderson exposes corporate fraud and ponzi schemes through his company Hindenburg Research.
The Washington Post | The Washington Post | Getty Images

Hindenburg Research has established itself as one of the most powerful voices in public activist short-selling, hammering the share prices of multiple big name companies in recent years with its blockbuster reports.
The New York-based activist short-seller, founded by Nate Anderson, has also developed a reputation for its fearlessness, having gone after billionaires like Carl Icahn and Gautam Adani, along with regularly launching big public short bets and serious allegations despite the potential minefield of litigation.

Short selling is the practice of borrowing an asset and selling it on in the hope of buying it back at a lower price, thereby pocketing the difference and profiting from the decline of the asset’s value.
In Hindenburg’s case, this is usually the shares of companies it deems to be houses of cards, or in the company’s words: “Popping bubbles where we see them.”
“With a knack for targeting high-profile companies, Hindenburg’s capacity to consistently produce high-quality, influential research stands in contrast to the, often ridiculously, demanding landscape for short-sellers,” Ivan Cosovic, managing director of data group Breakout Point, told CNBC via email.
Hindenburg has been a standout performer among short sellers over the past few years, according to Breakout Point’s data, regularly leading or appearing near the top of the firm’s annual list of notable achievers.

NEW YORK, NY – JANUARY 6: Nate Anderson in New York. Anderson exposes corporate fraud and ponzi schemes through his company Hindenburg Research.
The Washington Post | The Washington Post | Getty Images

Cosovic highlighted the “particularly remarkable” number of high-performing short calls the firm puts out annually. Hindenburg’s 10 targets in 2022 experienced an average share price decline of 42%, while its seven targets in 2023 notched an average plunge of 36%, it said.

In the first quarter of 2024, Hindenburg boasted two shorts among the top 10 best-performing short calls in the market, as of March 8: U.S. biotech Renovaro and Swiss-listed fintech Temenos.
Within the space of three days in mid-February, both companies became targets of Hindenburg’s infamous research reports, in which the firm names a short target and sets out its evidence.

NEW DELHI, India – Feb. 9, 2023: Members of Indian Youth Congress protesting against the Central government over the Adani issue at Indian Youth Congress Office, Raisina Road, on February 9, 2023 in New Delhi, India. Congress (IYC) staged a protest demanding a probe into the allegations of fraud made against the Adani group in the Hindenburg research report.
Hindustan Times | Hindustan Times | Getty Images

Both companies denied the allegations in Hindenburg’s reports, with Temenos saying in a statement that it “contains factual inaccuracies and analytical errors, together with false and misleading allegations,” and that the firm was not contacted for comment in advance.
On Friday, shares of Polish fashion retailer LPP plunged by around 30% as a result of Hindenburg’s latest attack, as it accused the Gdansk-headquartered company of continuing to make money in Russia despite promising to end operations there following the invasion of Ukraine in 2022. LPP dismissed the allegations as “part of an organised disinformation attack” seeking to reduce its share price.
Hindenburg says on its website that “while we use fundamental analysis to aid our investment decision-making, we believe the most impactful research results from uncovering hard-to-find information from atypical sources.”
These situations include accounting irregularities, bad actors in management or key service provider roles, undisclosed related-party transactions, illegal or unethical business or financial reporting practices, or undisclosed regulatory, product or financial issues.
Controversial practice
Breakout Point has tracked 74 Hindenburg short bets it has opened since 2017. Of the 65 positions the company has closed out, 53 saw the target’s share price decline, thereby yielding gains for Hindenburg.
Of the nine short positions currently open, seven of the targets are in the red, two of which have fallen almost to zero.
Short-selling is a controversial practice, since it involves making money from the decline of somebody else’s asset value. Retail investors have mounted campaigns to squeeze hedge funds with short positions against certain assets by buying them en masse, in order drive up the value and force the short-sellers to buy back the shares at a loss or risk losing more money for their clients.
The most famous example of this was the January 2021, when retail traders sent shares of brick and mortar games retailer GameStop soaring with major ramifications for financial markets.

Biggest hits
One of Hindenburg’s biggest recent campaigns centered on a collection of businesses owned by Indian billionaire Gautam Adani.
In January 2023, Hindenburg published a report accusing Adani Group companies of “brazen stock manipulation and accounting fraud.”
The allegations caused tens of billions of dollars to be wiped from the various Adani companies’ stock values and sparked an investigation from the Securities and Exchange Board of India. Adani Group released a 413-page response denying the allegations and threatening legal action.
Gautam Adani’s net worth fell by $6 billion overnight, but the conglomerate and his personal fortune have since recovered, with Adani Group’s market cap more than doubling from the lows reached on the back of the short attack.

In May last year, Hindenburg went after famed activist investor Carl Icahn’s Icahn Enterprises, alleging “inflated” asset valuations and excess leverage, also triggering a plunge in the company’s share price from which it has yet to meaningfully recover.
Icahn hit back at Anderson’s firm, claiming the report was created “solely” to generate profits on its short position at the expense of Icahn Enterprises’ long-term stakeholders.
Though Icahn and Adani just about weathered the storm, other Hindenburg attacks have uncovered existential faults in target companies.
For example, in 2023, the company uncovered what the U.S. Securities and Exchange Commission later deemed fraud at private investment firm Nanban Ventures and Nigerian fintech conglomerate Tingo Group.
Cosovic highlighted that while Hindenburg is best known for its public short-selling reports, it also plays a significant whistleblowing role in extending its scrutiny to private entities, in some cases.
The firm has also recently spotlighted a series of high-flying Chinese-headquartered companies listed on the Nasdaq, alleging that the tech-heavy New York exchange is permitting “rampant, open fraud.” All the companies involved have denied the allegations.
“I believe this ongoing Nasdaq endeavor nicely highlights Nate Anderson’s commitment to transparency and integrity in financial markets,” Cosovic said.
“Hindenburg Research has injected a breath of fresh air into the domain of public short-selling, revitalizing a sector that found itself beleaguered by SEC investigations and hate from retail investors.” More

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The window for interest rate cuts may be closing.
On the eve of the Federal Reserve’s two-day policy meeting, Wall Street forecaster Jim Bianco believes the central bank will likely stay on hold until next year.

“I’m in the camp that the Fed does not change policy in the summer of an election year,” the Bianco Research president told CNBC’s “Fast Money” on Monday. “If they don’t pull the trigger by June, then it’s November [or] December at the earliest — only if the data warrants it. And, right now, the data isn’t warranting it.”
For Fed Chair Jerome Powell to cut this spring, the economy would have to dramatically weaken, according to Bianco.
“The economy is too strong right now,” he said. “It’s in a ‘no landing phase’ as we like to call it. It’s not a Boeing plane. There’s no parts falling off of it, and it’s just continuing to move along at probably a 2.5% to 3% pace.”
This week’s Fed meeting comes almost exactly two years after policymakers started their rate hike campaign.
“It looks like we’re probably bottoming on inflation at around 3%,” he said. “That’s not 2[%], and the Fed has made it very clear that they need confidence for going to 2[%]. And, we’re not getting that.”

It appears Wall Street may be on notice. The CME FedWatch tool showed on Monday expectations for a quarter point rate cut in June dropped below 50%.
Plus, Treasury yields are climbing higher. The benchmark 10-year Treasury Note yield is yielding 4.328% —its highest level in a month and is inching closer to a four-month high.
“They may even go higher,” added Bianco. “It’s going to be the reality of inflation.”
In January, Bianco told “Fast Money” the 10-year yield would hit 5.5% this year. It’s a level not seen since May 2001.
He still believes the backdrop will keep the yield trending higher.
“I don’t think that is a consensus view in the marketplace,” Bianco said. “When we were at 5% in October, we were throwing up 3% growth rates in the economy, and it was able to handle that level of interest rates just fine.”
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Vladimir Putin, Russia’s president, and Ebrahim Raisi, his Iranian counterpart, have several things in common. Both belong to a tiny group of leaders personally targeted by American sanctions. Even though neither travels much, both have been to China in recent years. And both seem increasingly fond of one another. In December they met in the Kremlin to discuss the war in Gaza. On March 18th Mr Raisi was quick to congratulate Mr Putin for his “decisive” election victory.For much of history, Russia, Iran and China were less chummy. Imperialists at heart, they often meddled in one another’s neighbourhoods and jostled for control of Asia’s trade routes. Lately, however, America’s actions have changed the dynamic. In 2020, two years after exiting a deal that limited Iran’s nuclear programme, Uncle Sam reimposed an embargo; more penalties were announced in January this year, to punish Iran for supporting Hamas and Yemen’s Houthi rebels. Russia fell under Western sanctions in 2022, after invading Ukraine, and they were recently tightened. Meanwhile, China faces restrictions of its own, which could become much more stringent if Donald Trump is elected president in November. United by a common foe, the trio now vow to advance a common foreign policy: support for a multipolar world no longer dominated by America. All see stronger economic ties as the basis for their new alliance.China has promised a “no limits” partnership with Russia, and signed a 25-year, $400bn “strategic agreement” with Iran in 2021. All three countries are joining the same multilateral clubs, such as the BRICS. Bilateral trade between them is growing; plans are being drawn up for tariff-free blocs, new payment systems and trade routes that bypass Western-controlled locations. For America and its allies, this is the stuff of nightmares. A thriving anti-Western axis could help foes dodge sanctions, win wars and recruit other malign actors. The new entente involves areas where links are already strong, others where collaboration is only partial and some unresolved questions. What might the alliance look like in five to ten years?Start with booming business. China has long been a customer of petrostates, including Iran and Russia. But these two also used to sell lots of oil to Europe, which was close to Russia’s fields and easy to reach from the Gulf. Since Europe started snubbing them, China has been buying barrels at bargain prices. Inflows from Russia’s western ports have risen to 500,000 barrels a day (b/d), up from less than 100,000 pre-war, reckons Reid l’Anson of Kpler, a data firm. In December that pushed imports of Russian crude to 2.2m b/d, or 19% of China’s total, up from 1.5m b/d two years ago. In the second half of last year Iran’s exports to China averaged 1m b/d, a 150% rise from the same period in 2021.image: The EconomistWhereas Western sanctions allow anyone outside the G7 to import Russian oil, the Iranian energy industry is subject to so-called secondary sanctions, which restrict third countries. Since 2022, however, the Biden administration has relaxed enforcement—willing to see rules broken if it means lower prices. The result has been a surge in Chinese imports, with the beneficiaries not China’s state-owned firms, which could one day be exposed to sanctions, but smaller “teapot refineries” with no presence abroad. As a bonus, China also gets cheap gas from Russia: imports via the Power of Siberia pipeline have doubled since Mr Putin’s invasion of Ukraine.Russia and Iran have little choice but to sell to China. In contrast, China is only subject to restrictions on imports of Western technology—it does not face finance bans or trade embargoes. Thus it can, and does, buy oil from other countries, which gives it the upper hand in negotiations. China gets Russian and Iranian supplies at a discount of $15-30 on the global oil price, and then processes the cheap hydrocarbons into higher-value products. The production capacity of its petrochemicals industry has grown more in the past two years than that of all other countries combined since 2019. China also cranks out enormous volumes of refined-oil products.Trade not aidBoosting commodity trade between the three countries was always going to be the easy bit. Everyone wants oil; once on a ship, it can be sent anywhere. Yet China has an informal policy of limiting dependence on any commodity supplier to 15-20% of its total needs, meaning that it is close to the maximum it will want to import from Iran and Russia. Although the trade is still enough to provide the two countries with a lifeline, it is helpful only if they can spend the hard currency earned on importing goods. Hence the ambition to develop other types of trade.image: The EconomistChina’s exports to Russia have duly soared. As covid-19 restrictions strangled its economy, China sought to compensate by boosting manufacturing exports. Instead of shoes and t-shirts, it tried to sell high-value wares, such as machinery and mechanical devices, for which Russia acted as a test market. Last year the biggest importer of Chinese automobiles was not Europe, a big electric-vehicle buyer, but Russia, which purchased three times as many petrol cars it did as before the war.Purchasing-manager surveys show that Iranian companies are constantly short of “raw materials”, a category including both sophisticated wares, like computer chips, and more basic ones, such as plastic parts. This hampers Iran’s manufacturing industry, which is as large as its petroleum sector. Yet China exports few parts and just 300-500 cars a month to Iran, compared with 3,000 or so to neighbouring Iraq. Not many of China’s manufactured-goods exporters, which sell a lot to the West, are brave enough to risk American retribution.In theory, more business with Russia could help Iran. The two countries supply each other with useful goods. Since 2022 Iran has sold Russia drones and weapons systems that are causing damage in Ukraine—its first military support for a non-Islamic country since the revolution in 1979. Early this year Iran also sent Russia 1m barrels of crude by tanker, another first. But sanctions make deeper ties tricky. Although Russia stopped releasing detailed statistics in 2023, ship-traffic data in the Caspian Sea show only a modest rise since 2022, when the country’s leaders set an ambitious target to boost bilateral trade.Limited trade between Iran and Russia means they lack common banking channels and payment systems. Despite government pressure, neither SPFS (Russia’s alternative to SWIFT, the global interbank messaging system) or Mir (Russia’s answer to American credit-card networks) is widely used by Iranian banks. Efforts to de-dollarise trade led to the creation of a rouble-rial exchange in August 2022, but transaction volumes remain low.To resist sanctions in the longer run, Iran and Russia also need investment—the weakest area of co-operation at present. China’s stock of foreign direct investment in the Islamic Republic has been flat since 2014, even as it has poured money into other emerging economies, and at roughly $3bn remains puny for an economy of Iran’s size. Deals agreed during the last visit of Iran’s president to Beijing, which could be valued at $10bn at most, are dwarfed by the $50bn China pledged to Saudi Arabia, Iran’s great rival, in 2022.Although China remains involved in Russian projects such as Arctic LNG, a gas-liquefaction facility in the country’s north, it has not snapped up assets dumped by Western firms, notes Rachel Ziemba of CNAS, a think-tank, nor backed new ventures. Russia had been expecting China to bankroll the Power of Siberia 2 pipeline, due to carry 50bn cubic metres of gas to the Middle Kingdom when complete—almost as much as Russia’s biggest pipeline used to deliver to Europe. Without China’s support, the project is now in limbo.A little help from your friendsThe alliance has already achieved something remarkable: saving its junior members from collapse in the face of Western embargoes. But has it reached its full potential? The answer depends on the ability of its members to surmount external and internal obstacles.Various forums aim to promote co-operation and cross-border investment. Last July Iran became the ninth member of the Shanghai Co-operation Organisation, a China-led security alliance that also includes Russia. In December it signed a free-trade agreement with the Russia-led Eurasian Economic Union, which covers much of Central Asia. In January it joined the BRICS, an emerging-market group that includes both China and Russia.These get-togethers give the trio more chances to talk. At recent summits, Iranian and Russian ministers have revived negotiations to extend the International North-South Transport Corridor (INSTC), a 7,200km route connecting Russia to the Indian Ocean via Iran. At present Russian grain must travel to the Middle East through the NATO-controlled Bosporus. The proposal, which includes a mixture of roads, rail and ports, could turn Iran into an export outlet for Russia.Iran and Russia’s bureaucracies have relatively little experience of working with one another, and the amount of investment required is daunting: the Russia-backed Eurasian Development Bank estimates it to be $26bn in Iran and Russia alone. Mustering such funding, in two countries not known for investor friendliness, would be hard at the best of times, let alone under sanctions. Still, the idea is gaining traction. On February 1st envoys discussed the next steps for the Rasht-Astara railway, a $1.6bn project that could ease cargo transit in northern Iran. Last year Russia used part of the INSTC to move goods to Iran by rail for the first time.The more serious problem is that Iran and Russia’s economies are too similar to be natural trading partners. Of the top 15 categories of goods that each exports, nine are shared; ten of their 15 biggest imports are also the same. Only two of Russia’s 15 most wanted goods count among Iran’s top exports. Where Iran does have demand gaps Russia could fill, such as in cars, electronics and machinery, Russia’s production capacity is constrained.With gains from trade curtailed by various sanctions, the relationship between the two countries will instead be a competitive one, particularly when it comes to energy exports. Since the West imposed an embargo on Russia’s oil, the country has been vying with Iran to win a bigger share of China’s imports, resulting in a price war. It is a battle that Iran is losing. Russia is a bigger oil producer and its energy is not subject to secondary sanctions. Some of its crude can also be piped to China, a cheaper option.Having the upper hand makes Russia uninterested in offering assistance to its allies. Early in the war, Ukraine’s supporters feared that Russia and Iran would team up to evade sanctions. Instead, Russia developed its own “shadow” fleet of tankers and gave no access to the Iranians, says Yesar Al-Maleki of MEES, a research outfit. Iran has sought Russian funds and technology to tap its giant gas reserves; Russia has provided little help so far.In other areas, China has become a competitor to Iran. Until recently, the Islamic Republic’s sizeable manufacturing base was a source of resilience. The country could take advantage of a devalued currency to sell nuts and toiletries, says Esfandyar Batmanghelidj of Bourse & Bazaar Foundation, another think-tank. Its hope, in time, was to climb the value chain, exporting air-conditioning units and perhaps even cars. China is dashing such dreams. As it shifts towards higher-value exports, it is flooding Iran’s target markets with cheaper, better versions of these goods.The West seems to have little appetite for wholesale secondary sanctions. But existing measures will continue to cause trouble. In December America announced penalties for anyone dealing with Russian firms in industries including construction, manufacturing and technology. These look similar to those it imposed on Iran in 2011, which were later suspended in 2015, after the nuclear deal was signed. Before the suspension, the measures caused Iran’s imports from China to plummet. There is evidence that some Chinese banks are already dumping Russian business.Although these new sanctions do not target Russia’s energy sector, they could hinder Russia’s oil trade with customers other than China if banks react by pausing business with the energy giant. Since October America has also imposed sanctions on 50 tankers that it says breach sanctions on Russia; around half of them have not loaded Russian oil since. All this is making exports to China both more necessary and more difficult for Russia, which is bound to increase competition with Iran. America could fan the flames further by leaning on Malaysia to inhibit oil smuggling in its waters, choking off Iranian flows. And China itself is under growing scrutiny. In February the EU announced sanctions on three Chinese firms it reckons are helping Russia.The scareometerAt this stage, then, the anti-Western entente is worrying but not truly scary. How will it develop over the years and decades to come? The likeliest scenario is that it remains a vehicle that serves China’s interests, rather than becoming a true partnership. China will use it for as long as it can reap opportunistic gains, and stop short of giving it proper wings. China will decline to put weight behind alternative trade routes or payment systems, not wanting to put at risk its business in the West.Yet that might change if America, perhaps during a second Trump presidency, attempts to force China out of Western markets. With nothing more to lose, China would then put far greater resources into forming an alternative bloc, and would inevitably attempt to build on existing relationships and broaden its alliances. Junior partners may not be pleased: their manufacturing industries would suffer as China redirected its exports. America would also suffer: its consumers would pay more for their imports, and in time its leaders would see the first serious challenge to their dominance of the global trading system. ■ More

Investing smartly doesn’t have to be complicated, according to financial experts.
Target-date funds are the easiest way for novice long-term investors to get started, experts said.
Target-allocation funds or global market index funds are other easy entry points, they said.

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Investing can seem overly complicated, and that complexity may paralyze Americans into doing nothing.
But investing — and doing so smartly — doesn’t have to be hard. In fact, getting started can be relatively easy, according to financial experts.

“You don’t need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ,” Warren Buffett, chair and CEO of Berkshire Hathaway, famously said.
For many people, investing is a necessity to grow one’s savings and provide financial security in retirement. Starting early in one’s career benefits the investor due to a longer time horizon for interest and investment returns to compound.
While appropriate long-term goals may differ from person to person, one rule of thumb is to save roughly 1x your salary by age 30, 3x by 40 and ultimately 10x by 67, according to Fidelity Investments.

A ‘fabulous, simple solution’ for beginners

Target-date funds, known as TDFs, are the simplest entry point to investing for the long term, according to financial pros.
“I think they’re a fabulous, simple solution for novice investors — and any investor,” said Christine Benz, director of personal finance and retirement planning at Morningstar.

TDFs are based on age: Investors choose a fund based on the year in which they aim to retire. For example, a current 25-year-old who expects to retire in roughly 40 years may pick a 2065 fund.

These mutual funds do most of the hard work for investors, like rebalancing, diversifying across many different stocks and bonds, and choosing a relatively appropriate level of risk.
Asset managers automatically throttle back risk as investors age by reducing the share of stocks in the TDF and raising the exposure to bonds and cash.

How to pick a target-date fund

TDFs are a good starting point for “do nothing” investors who seek a hands-off approach, said Lee Baker, a certified financial planner and founder of Apex Financial Services in Atlanta.
“That’s the easiest thing for a lot of people,” said Baker, a member of CNBC’s Advisor Council.
Investors need only choose their TDF provider, their target year and how much to invest.

Benz recommends selecting a TDF that uses underlying index funds. Index funds, unlike actively managed funds, aim to replicate broad stock and bond market returns, and are generally cheaper; index funds (also known as passive funds) tend to outperform their actively managed counterparts over the long term.
“You definitely want a passive TDF,” said Carolyn McClanahan, a CFP and the founder of Life Planning Partners in Jacksonville, Florida.
Benz also advises investors seek out funds from among the biggest TDF providers, like Fidelity, Vanguard Group, Charles Schwab, BlackRock or T. Rowe Price.

Other ‘solid choices’ for novice investors

Investors who want to be a bit more hands-on relative to TDF investors have other simple options, experts said.
Some may opt for a target-allocation fund, for example, Baker said. These funds are like TDFs in that asset managers diversify among stocks and bonds according to a particular asset allocation — say, 60% stocks and 40% bonds.
But this allocation is static: It doesn’t change over time as with TDFs, meaning investors may eventually need to revisit their choice. They can determine which fund might be a good starting point by filling out an online risk profile questionnaire, Baker said.
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As another option, investors may instead opt for a global market index fund, an all-stock portfolio diversified across U.S. and non-U.S. equities, Benz said. As with target-allocation funds, these funds don’t de-risk as one ages.
“I think sometimes novice investors question the simple elegance of some of these very solid choices,” Benz said. “People crave something more complex because they assume it has to be better, but it’s not.”

Ask yourself: Why am I investing?

Young, long-term investors should generally ensure their fund — whether TDF or otherwise — has a high allocation to stocks, around 90% or more, said McClanahan, a member of CNBC’s Advisor Council.
Retirement investors under age 50 would likely be well-suited with a portfolio tilted mostly to stocks, with some cash reserves set aside in the event of emergencies like job loss or health issues, Benz said.

You don’t need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ.

Warren Buffett
chair and CEO of Berkshire Hathaway

One caveat: Investors saving for a short- or intermediate-term need — maybe a house or car — would likely be better served putting allotted money in safer vehicles like money market accounts or certificates of deposit, McClanahan said.
The easiest place for long-term investors to save is a workplace retirement plan like a 401(k) plan. Those with an employer match should aim to invest at least enough to get the full match, McClanahan said.
“Where else do you get 100% on your money?” she said.
Investors who don’t have access to a 401(k)-type plan can instead save in an individual retirement account — another type of tax-preferred retirement account — and set up automatic deposit, McClanahan said.
TDF investors who save in a taxable brokerage account may get hit with an unexpected tax bill, experts said. Because TDFs regularly rebalance, there are likely to be transactions within the fund that trigger capital-gains taxes if not held in a tax-advantaged retirement account.

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